Free tax filing has confused many Americans. Here’s help.
The majority of individual taxpayers in the U.S. are eligible to file their taxes online for free, yet many may be unaware or confused by how to do so.
The tax industry and the IRS have played a part in the problem. Together they run the IRS Free File system, which about 70% of taxpayers are eligible for but only a sliver use. It was designed to help low- and middle-income taxpayers find a reliable program to file at no cost and boost online filings. However, the IRS has long faced criticism for its failure to promote and support the program. And recent media reports uncovered efforts by the tax software preparation industry to misguide users of Free File and nudge them into paid products.
Subsequently, improvements have been made and Free File should be easier to use in 2020. But, with tax season getting into full gear, users should know the details of the service and the alternatives.
WHAT IS FREE FILE?
The IRS Free File program allows taxpayers whose adjusted gross income is $69,000 or less to file for free. Tax software prep companies administer Free File via a partnership with the IRS. This year, taxpayers have their choice of 10 providers, including well-known names such as TurboTax, H&R Block and TaxSlayer.
Free File has been available since 2003; but while roughly 70% of taxpayers are eligible, only about 2% use the program, according to the National Taxpayer Advocate’s Office.
WHY THE LIMITED APPEAL?
Critics say the program is confusing and difficult to use. The process taxpayers must follow is “obscure and complex,” according to a report released earlier this month by the Treasury Inspector General for Tax Administration.
The program is also poorly promoted. The IRS has not allocated any money to advertise Free File since 2014, although the agency does promote it on its website, social media and in press releases. For their part, some companies say they promote the program. TurboTax said increased advertising and other efforts boosted Free File usage last year.
The Taxpayer Advocate, which represents the taxpayer’s voice within the IRS, has been critical of the IRS’ management of the program, saying it fails “to promote the best interest of taxpayers,” noting the low usage and confusion among taxpayers.
Additionally, critics say taxpayers may find themselves confused between the Free File system and the free or low-cost versions offered by the tax prep companies themselves.
Last year, the nonprofit news organization ProPublica found that some of the companies added code to their websites that hid their Free File programs from search engines and diverted users to paid products. Outside investigations confirmed that at least five companies did have coding that prevented users from getting to the proper page. The companies cited in the reports have denied any wrongdoing.
While the companies’ actions didn’t violate their agreement with the IRS, the agency has barred the companies from hiding their free products, among other changes to their agreement.
The IRS and the Free File Alliance, a coalition of tax prep companies that work in the partnership, say they are committed to making future improvements to the program.
The cost to file online with a tax software preparation company varies depending on the complexity of someone’s tax situation, if they are filing state returns as well, or if they need professional assistance. It can range from around $30 to well over $100.